Conclusion• Natural gas: Japan’s important energy source.- Securing stable energy supply- Maintaining global environment• Share in the Japan’s primary energy supply towards 2030expected to increase.• Share increase both in electricity generation and heatapplication.• Japanese city gas utilities have been instrumental in expandingdemand for natural gas through the introduction of highlyefficient, environmentally friendly technologies to Japan’sindustrial, commercial and residential markets.• They are further extending their effort by capturing electricitydemand in residential market by introducing PEFC.

For Presentation at APEC Clean Fossil Energy Technical and Policy SeminarFriday, 28 January 2005, Cebu City Marriott Hotel, Cebu, Philippines1. NaturalGas in the Japanese Energy Market1.1. Current SituationJust like petroleum, Japan does not have large domestic natural gas reserves anduntil LNG (liquefied natural gas) import started in 1969, share of natural gas inJapan’s primary energy supply was less than 1%. In around 35 year since then,share of natural gas rose to 13.5% or 3,111 PJ(peta joule=10 15 joule) of Japan’sprimary energy supply in 2002, which was 22,977PJ or 583 million kilo litter of oilequivalent.97% of natural gas used in Japan is imported in the form of LNG, mainly (about80%) from Asia Pacific economies such as Australia, Brunei Darussalam, Indonesiaand Malaysia.Out of 55 million(10 6 ) tons of LNG imported to Japan in 2002, 69% was imported byelectric power companies for electricity generation at LNG power stations. The rest isprimarily distributed as city gas by city gas utilities for various end use applications inindustrial, commercial and residential energy market.Natural gas accounted for 26% of electricity generated in Japan in 2000. On theother hand, 87% of energy source of city gas was natural gas. Tokyo Gas pioneeredconversion of city gas source to natural gas in 1969 to mitigate air pollutions in urbanareas. Since then, 133 out of 238 city gas utilities have introduced natural gas.1.2. Future of NaturalGas in JapanNatural gas is environmentally more benign compared to other fossil energysources and its reserves are geographically more dispersed than petroleum whosereserves are largely concentrated in politically unstable Middle-east. Because ofthese advantages, Japanese government has positioned natural gas as an importantenergy source from the viewpoint of securing stable energy supply and protectingglobal environment, and has been promoting the shift to natural gas from petroleum.Japanese government’s “Long-term Energy Demandand Supply Outlook (2004)”says “Expansion of natural gas use both in electricity generation and in heatapplication is desirable as natural gas has environmentally advantageouscharacteristics.” The “Outlook” forecasts that in 2030, share of natural gas in Japan’sprimary energy supply will increase to 18%.Because natural gas use in electricity generation in large scale power station isobvious, the rest of the paper describes the development of natural gas applicationsin Japan’s industrial, commercial, and residential sectors which are supplied withnatural gas as city gas by city gas utilities.2. NaturalGas Technology in Japanese Industrial Energy Market2.1. Historical DevelopmentNatural gas use in Japanese industrial sector began as a substitute for petroleum tomitigate air pollutions in urban areas. Although natural gas has been priced higherthan competing petroleum products, higher efficiency, pollution-free combustiontechnologies developed for boilers, furnaces and other industrial heat processeshave promoted conversion of industrial fuel from petroleum to natural gas.Page 2 of 5

For Presentation at APEC Clean Fossil Energy Technical and Policy SeminarFriday, 28 January 2005, Cebu City Marriott Hotel, Cebu, PhilippinesRecent concern with the global environmental problem prompted energy savingfrom the view point of not only energy cost reduction but also global environmentalprotection. On-site co-generation with natural gas is a very effective way to improveenergy use efficiency at industrial sites and thus has been promoted in Japan.Japanese gas utility companies have made significant effort to introduceco-generation systems to Japanese energy markets through demonstration of itseffectiveness in the early stage, and by negotiating deregulation of connections ofco-generation systems with the power grid.Industrial sector demand accounts for 40% of annual city gas sales in Japan in2002 and has shown highest ratio of demand increase.2.2. Example of Industrial NaturalGasTechnologies2.2.1. FFR burnerFFR (Fulltime FDI Regenerative burner) is an industrial burner system applicableto industrial furnaces such as forging furnaces or heat rolling furnaces. FFR is acombination of an ultra low NOx (nitrogen oxides) burner (FDI burner) originallydeveloped by Tokyo Gasand a compact regenerator and has realized a very lowNOx combustion and very high combustion efficiency at the same time. In a FFRsystem, more than 80% of exhaust heat is recovered and it produces very low NOx(90ppm, O2=11%) up to 1400 deg. C.2.2.2. Co-generationCo-generation systems are available both with gas turbines and gas engines.Tokyo Gas offers its customers co-generation systems from 0.5MW up to 10.3MW generation capacities with gas turbines. All the exhaust heat from gas turbinescan be recovered in the form of steam, and thus gas turbine cogeneration systemsare suitable for customers who require a large amount of process steam.In recent years, large capacity gas engines have been used where highgeneration efficiency is demanded. Exhaust heat can be recovered in the form ofeither hot water or steam.Natural gas co-generation is also well accepted in factories where power supplyinterruption can have a significant impact on production process, such assemi-conductor manufacturing.By the end of March 2004, more than 2,200MW capacity of natural gas drivenco-generation systems have been installed in over 600 factories in Japan.3. NaturalGas Technology in Japanese Commercial Energy Market3.1. Air-conditioning with NaturalGasNatural gas use in commercial market started with hot water boilers and restaurantcooking stoves. Japanese gas utilities have been making significant effort to captureair-conditioning demand for natural gas, because cooling demand in buildings in hotand humid Japanese summer can create a significant natural gas load whendomestic water heating demand is low.Absorption chillers driven by natural gas have taken up a large share ofPage 3 of 5

For Presentation at APEC Clean Fossil Energy Technical and Policy SeminarFriday, 28 January 2005, Cebu City Marriott Hotel, Cebu, Philippinesair-conditioning units installed in large buildings in urban areas in Japan. Also, tocapture air-conditioning demand in smaller buildings, Japanese city gas utilitiesinitiated development of GHP’s (Gas Engine Heat-pumps) with the aid ofgovernment funding and successfully introduced them to the market.In recent years, to achieve energy savings, office buildings, hotels and hospitalshave started to introduce co-generation systems. Electricity is generated with gasturbines or gas engines and the exhaust heat is recovered as either hot water orsteam and used to drive absorption chillers for air-conditioning.With air-conditioning, demand in commercial sector accounts for 16% of city gassale volume in Japan in 2002.3.2. Example of Commercial Market NaturalGasTechnologies3.2.1. GHP (Gas Engine Heat-pump)A GHP is an air-conditioning unit for cooling and heating. In GHP, a refrigerantcompressor is driven with a gas engine. The capacity ranges from 8 to 56 kW.Typically multiple units are installed to cover up to 30,000m² of floor space. Early in2005, units with improved COP (Coefficient of performance) of 1.5 will beintroduced to the market.Approximately 1,000MW or 26,000 units of natural gas driven GHP’s are annuallyinstalled in recent years in Japan.3.2.2. Absorption ChillerAbsorption chillers use water as the refrigerant and are driven by heat fromnatural gas combustion, steam or even hot water. They are particularly suitable forlarge scale buildings of over 30,000m² of floor space. As mentioned above, theycan be used to recover heat in gas engine or gas turbine co-generation systems.More than 24GW of absorption chillers have been installed and running in Japan.4. NaturalGas Technology in Japanese Residential Energy Market4.1. Competition with electricityKitchen and hot water demand in residential market have long been the majormarket for Japan’s city gas utilities. But in recent years, competition with electricutility companies has been intensifying because electric utilities are making inroadsinto residential market with electric kitchen stoves and heat-pump water heaters. Insome areas in Japan, more than 10% of new residences are so-called “all electric”houses.Japanese gas utilities are trying to counter the competition by introducing energyefficient natural gas appliances and thus by offering more comforts at less cost forthe consumers.One of these technologies is an instantaneous hot water heater with latent heatrecovery (”Eco Jouzu”). Another offering is Polymer Electrolyte Fuel Cell (PEFC)which will be introduced to the Japanese market for the first time in the world early inFebruary. PEFC will not only create substantial demand for natural gas in residentialmarket but also open up the way for city gas utilities to enter into electricity businessPage 4 of 5

For Presentation at APEC Clean Fossil Energy Technical and Policy SeminarFriday, 28 January 2005, Cebu City Marriott Hotel, Cebu, Philippinesin the future in the unregulated energy market.4.2. Examples of Recent Residential NaturalGasTechnologies4.2.1. Eco Jouzu“Eco Jouzu” is a product name for recent instantaneous hot water heater units.Unit capacity is either 35kW or 42kW and one unit can supply hot water for thekitchen, bath, and floor heating of a house. With latent heat recovery its heatefficiency can be as high as 95%.4.2.2. PEFC (Polymer Electrolyte Fuel Cell)Four kinds of fuel cells have been proposed and developed. PEFC is a fuel cellthat uses proton exchange membrane as the electrolyte and operates at relativelylow temperature. (Room temperature to up to 90 deg. C) Its generation efficiencycan be from 30% to 35%. Relatively low operating temperature allows quick startand heat recovery by hot water, which makes PEFC suitable for residential use.Tokyo Gas has cooperated with Matsushita Electric and Ebara Ballardrespectively to develop first commercial PEFC units. They are 1kW capacity andequipped with 200 litter hot water tank. Electricity generation efficiency is 31%.Normally it is operated in DSS (daily start and stop) mode.It is supposed to reduce primary energy consumption by 26% and CO 2 emissionby 40% compared to a conventional combination of grid electricity and a hot waterheater.Tokyo Gas will introduce PEFC to the market in early February 2005. Only a fewhundred units will be installed at this stage and large scale marketing of improvedunits will start 2008.5. ConclusionNatural gas has been positioned as an important energy from the viewpoint ofsecuring stable energy supply and maintaining global environment in Japan and isexpected to increase its share in the Japan’s primary energy supply towards 2030.Share of natural gas will increase both in electricity generation and heat application.Since the introduction of LNG to Japan in 1969, Japanese city gas utilities have beeninstrumental in expanding demand for natural gas through the introduction of highlyefficient, environmentally friendly technologies to Japan’s industrial, commercial andresidential markets. They are further extending their effort by capturing electricitydemand in residential market by introducing PEFC.Page 5 of 5

Profile of Hisao WatanabeJanuary 10, 2005Name: Hisao WatanabeCurrent Position: General Manager of Research DepartmentTokyo Gas Co., Ltd.16-25 Shibaura 1-chome, Minato-ku,Tokyo, Japan 105-0023Phone: +81-3-5484-4569FAX: +81-3-3452-0915E-mail: hisao-w@tokyo-gas.co.jpDate of birth: September 18, 1952CareerCurrent position since April, 2004.Previously, General Manager of Information & Communication Systems Department(corporate IT department) for two years, and Executive Vice President of atelecommunication joint venture of Tokyo Gasand Marubeni.Led industrial and commercial gas sales organization in central Tokyo area.Engaged in various aspects of R&D planning activities in corporate planningorganizations. During the same period, temporally joined the feasibility study ofMalaysia’s first city gas utility project, and also dispatched to the Program for theUS-Japan Relations, Harvard University, USA for a year.Started the career at Tokyo Gas in 1975 in Management Science team in the corporate ITdepartment.Academic Degrees:1979 Master of Science in Industrial Administration(MBA), with distinction,Graduate School of Industrial Administration, Carnegie-Mellon University,U.S.A.1975 Bachelor of Engineering,Department of Mathematical Engineering and Information Physics,The University of Tokyo, JapanAbout Tokyo Gas Co., Ltd.Incorporated in 1885 and headquartered in Tokyo, Tokyo Gas is a city gas utility servingmore than 9 million customers in Tokyo Metropolitan area. As of March 1, 2004, thenumber of employees is about 12000, and the annual sales for the fiscal year ended March1, 2004 is 1,151 billion yen (roughly US$10B.) End- 1/1 -